AUDIT RESPONSIBILITIES AND OBJECTIVES
REVIEW QUESTIONS
6-1 (OBJECTIVE 6-1) State the objective of the audit of financial statements. In general terms, how do auditors meet that objective?
6-2 (OBJECTIVE 6-2) Describe management’s responsibility for the financial statements. Do you believe the CEO and CFO of a public company perceive an even greater responsibility as a result of the Sarbanes Oxley Act requirement to certify the financial statements
submitted to the SEC?
6-3 (OBJECTIVE 6-3) Distinguish between the terms errors and fraud. What is the auditor’s responsibility for finding each?
6-4 (OBJECTIVE 6-3) Distinguish between fraudulent financial reporting and misappropriation of assets. Discuss the likely difference between these two types of fraud on the fair presentation of financial statements.
6-5 (OBJECTIVE 6-3) List two major characteristics that are useful in predicting the likelihood of fraudulent financial reporting in an audit. For each of the characteristics, state two things that the auditor can do to evaluate its significance in the engagement.
6-6 (OBJECTIVE 6-3) Explain the auditor’s responsibility to consider compliance with laws and regulations. How does this responsibility differ for laws and regulations that have a direct effect on the financial statements compared to other laws and regulations that do not have a direct effect?
6-7 (OBJECTIVE 6-3) What is the auditor’s responsibility when noncompliance with laws or regulations is identified or suspected?
6-8 (OBJECTIVE 6-4) What are the six elements of professional skepticism? Describe two of those six elements.
6-9 (OBJECTIVE 6-5) What are the five elements of an effective professional judgment process?
6-10 (OBJECTIVE 6-5) Describe two of the more common judgment traps and biases.
6-11 (OBJECTIVE 6-6) Identify the cycle to which each of the following general ledger accounts will ordinarily be assigned: sales, accounts payable, retained earnings, accounts receivable, inventory, and repairs and maintenance.
6-12 (OBJECTIVES 6-6, 6-7) Why are sales, sales returns and allowances, bad debts, cash discounts,accounts receivable, and allowance for uncollectible accounts all included in the same cycle?
6-13 (OBJECTIVES 6-7, 6-8) Distinguish between the general audit objectives and management assertions. Why are the general audit objectives more useful to auditors?
6-14 (OBJECTIVE 6-8) Identify the two broad categories of management assertions.
6-15 (OBJECTIVE 6-9) An acquisition of a fixed-asset repair by a construction company is recorded on the wrong date. Which transaction-related audit objective has been violated?
Which transaction-related audit objective has been violated if the acquisition had been capitalized as a fixed asset rather than expensed?
6-16 (OBJECTIVE 6-10) Distinguish between the existence and completeness balance-related audit objectives. State the effect on the financial statements (overstatement or understatement) of a violation of each in the audit of accounts receivable.
6-17 (OBJECTIVES 6-9, 6-10) What are specific audit objectives? Explain their relationship to the general audit objectives.
6-18 (OBJECTIVES 6-8, 6-10) Identify the management assertion and general balance-related audit objective for the specific balance-related audit objective: All recorded fixed assets exist at the balance sheet date.
6-19 (OBJECTIVES 6-8, 6-10) Identify the management assertion and general balance-related audit objective for the specific balance-related audit objective: Read the fixed asset foot note disclosure to determine that the types of fixed assets, depreciation methods, and useful lives are clearly disclosed.
6-20 (OBJECTIVE 6-11) Identify the four phases of the audit. What is the relationship of the four phases to the objective of the audit of financial statements?